Stock picking/Personal Investing questions

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farney

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The investment book thread got me thinking. I�ve read a decent amount about personal investing but not a ton, and would like to get more involved. As someone who doesn�t work or interact with the markets on a daily basis (consulting) but is trying to transition into finance (AM, HFs), and also is interested in personal investing, I am curious as to how some of you go about the process of picking stocks, following the markets, etc.

Has anyone used one of the sites like investopedia.com where you can set up an account with fake money? Saw how your picks did and went from there?

What do you read/watch on a daily basis to really get a feeling for the markets (WSJ, FT, CNBC, websites)?

Basically I�m just interested in people�s habits in this area.
Thanks

FYI I am awaiting my level II results, and am probably most interested in fundamental L/S strategies and also some event-driven strategies.
 
Top down approach using common sense and long trends is where I always start for LONG TERM (10+ years) investing. Cause and effect type investing, more like Fact and Result but same idea.

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Fact:

Obesity is growing in US

Result:

Already national epidemic. Organic natural healthly products will begin to emerge as the solution? OATS/WFMI.. Possible Diet products (NTRI)

-----------------------------------------------------------------

Fact:

Baby Boomers are retiring and will have will exponentially more wealth ever seen before with a retiring generation.

Result:

Investment Advisory Firms will benefit, Casinos, and Retirement Communities, (also Funeral Services) (WYNN, RJF, LM, etc)

--------------------------------------------------------------------------------------------------------



After I go through all the scenarios I can I look and see what is cheap based on historic P/E. I buy a full position on cheap stocks (low P/E) and nibble at the other stocks. I check their performance once every quarter or so.
 
MFE,
thanks this is exactly the kind of response I was looking for. What books would you say influenced your approach the most? I have read the Lynch books, random walk and am starting Intelligent Investor. Also how long have you been picking individual stocks?
 
farney

I was in a similar boat--cruised through the CFA exams, wanted to transition over to buyside reseach, but didn't have much real life experience of researching stocks and managing a portfolio.

So here's what I did:

1) started reading the WSJ everyday to get a better feel for general market trends.

2) opened a brokerage account at schwab, tried to reseach companies as best I could for about a month, and launched a portfolio with 8 stocks. It seems a little crazy to jump in the water before testing the tempature, but nothing movivated me more than actually having some skin in the game--I never stayed with my paper portfolios.

If you diversify as best you can, and you stick to larger, more stable companies, you probably won't lose your shirt right away. Be careful though.

3) read, read, and read some more. Went to the investing section of the library, and checked out whatever looked interesting. If it sucked, I stopped reading it.

A gem I recently found was "Value Investing with the Masters". It's a series of interviews with various PM's. Great insight to their stock-picking and valuation process. But really, there's probably about 100 books there that are valuable in some way. For EV stuff, check out Greenblatt's "You can be a genius".

4) reevaluated my current portfolio. Went through the annual reports and some filings on edgar. A few stocks were a little to rich, so I sold them. Analysed my portfolio as a whole to see how it stacked up again my benchmark. Created a monthly report with my holdings and performance information.

5) began researching some new companies. Wrote up some stock pitches based on templates from U of Chicago's Investment Mgmt Group. I have a lot better feel for the process now, so I'm taking a few more (educated) risks.

Currently trying to refine my process, but it basically starts out with a large screen, then a comparison analysis with other companies in the industry, then some in-depth research, then writing a report, then making a decision. Try not to forecast big econ trends--just try to buy cheap companies.

Not sure if this is the best way to go about it, but it's been a huge learning experience so far. I think I'll be a lot more prepared in future interviews because I'll have some tangible experiences to draw upon when discussing my research process, investment philosophy. amd approach to portfolio mgmt.

If anyone has any other tips, I'm all ears.
 
Naturallight, how have your returns been? Greenblatt's book is a good one. I have a tip for you: for screening, you should try AAII's "Stock Investor Pro". It is incredible.

I agree that a bottoms up approach might be better for farney if he has financial/CFA skills and plenty of time to burn.
 
I have been doing Ok with my personal trading. I have been using simple valuation model (something I can do in my head). I have found just simple thing like this can improve my performance a lot. I am interested to get into finance by passing CFA exam. I am not sure if I will ever get a finance job. But this knowledge makes me feel really excited. My day job is software development. I am planning to develop more accurate valuation model to drive my trading.



Edited 1 time(s). Last edit at Friday, July 20, 2007 at 02:08PM by disptra.
 
virginCFAhooker

Returns have been right with the S&P, which is right where I want them. As of yesterday, I was slightly outperforming, now I'm slightly underperforming (one of my companies missed earnings and is really getting punished).

That's fine though, I wanted this to be primarily a learning experience for me, not a path to quick riches.

I will check out the AAII's "Stock Investor Pro". What other resources do you use?
 
Buy the dip on your Google natty light...you won't regret it.



Edited 1 time(s). Last edit at Friday, July 20, 2007 at 04:46PM by tobias.
 
Naturalight, AAII is my favorite even though it doesn't actually generate a lot of ideas. I'm a member of Greenblatt's valueinvestorsclub.com and that keeps me very busy chasing lots of ideas. I'm trying out an "insider buying" notification service in Canada for TSX/Venture stocks that is pretty interesting... i think i'm generating an investment idea out of that. I'm into oil & gas investing in Alberta so I read a lot of industry & investor gossip in chatrooms.

Tobias... I thought you did airlines? do you mind telling us why you think Google is a buy? It makes it more fun that way. The guys at Alliance Bernstein said google and apple were their top growth picks... but they're not very good growth investors.
 
vCFAh, I am a generalist who spent a lot of time building an airline thesis. I know a little about a lot of things, and airlines are one of those things I know more about than I would prefer. I still like a few of the airlines, but it appears that the industry has returned to shooting itself in the foot as managements have not shown the discipline they suggested they would. The planes are full to record levels, yet they will not act in concert to raise fares for fear they will lose share. Cowards and idiots. As a result, we will see earnings down year/year for most carriers. I was very bullish when I made those initial airline posts, and don't mind admitting I was wrong. I am wrong a lot. But I am right more often.

I like Google in general because it is cheap relative to its growth rate (PEG below 1) at roughly 27x next year's consensus after today's tumble. Compare that to 46x for Yahoo, and 45x for AMZN, neither of which has the growth that Google has. I think estimates are low for Google as well. They will earn well in excess of $20 next year, maybe even $21 or $22. The analysts are always conservative and are consistently forced to raise their numbers over time as the growth continues to surprise them. The shift from offline to online advertising is in the middle innings and Google is the market leader and is STILL taking share.

This quarter was a "miss", if you listen to 99% of the people out there. The reasons cited for the supposed miss were extra headcount due to the hiring of SALESPEOPLE and a true-up of a bonus accrual. Last I checked, if you are hiring salespeople it means you expect to sell more of your product. As for the bonus accrual, they simply changed the way they account for it so that it is smoother throughout the year instead of a big charge in the fourth quarter like it has been the past few years (read: they are going to have a blowout 4th quarter).

In summary, they are by the most dominant player in their market, they signaled to the market that business is strong by hiring additional salespeople, they missed by $0.03 or 0.84% of the $3.59 consensus because of a change in an accounting convention that has no impact on the underlying business or cash flow, and the stock got hammered by 5%. My target for year end 2007 (or lets say the day after they report full-year earnings, so roughly 6 months from now) is $630 (21% return), using 30x my '08 number of $21, which is roughly the multiple they were trading at based on 2007 earnings at the beginning of this year.

Full disclosure: I own a sh** ton of Google.



Edited 1 time(s). Last edit at Friday, July 20, 2007 at 06:17PM by tobias.
 
Yahoo.com shows GOOG dropped $508 to $12 now. It is really funny.
 
Wow... thanks for the google run down.

I recently was trying to come up with a "special situation" type thesis for buying Jazz Airlines Income Fund, a spinoff from air canada. It turns out I think Jazz is a terrible buy. It could even be a good short candidate in a couple of years. Jazz has no assets, just an agreement with Air Canada. I can see no reason why Air Canada would extend the agreement now that they're completely divested of them? Air Canada owns the airplanes, the routes, etc. It's a joke with a fat yield and even the yield will get chopped because of a new tax coming into effect in 2010. Anyway... technology & airlines aren't the best places to try to invest using any kind of fundamentals/value investing knowledge!?!
 
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